Harnessing Embedded Insurance for Enhanced Adaptation and Risk Mitigation

Property and Casualty (P&C) insurance, traditionally a shield against random adverse events, is undergoing a significant shift towards a more adaptive approach. This evolution is embodied in the concept of ’Embedded Insurance at the Point of Design.’ Unlike standard insurance products offered as add-ons at the point of sale, this innovative approach involves integrating insurance directly into the design process of assets. This integration fosters a unified value proposition, enhancing transparency and affinity among insurers, designers, and manufacturers, and opening doors to new features focused on adaptation and risk mitigation.

Conventional P&C insurance models primarily focus on resilience – restoring the consumer to their pre-loss state. However, these models often overlook the potential for future risk mitigation. Drawing an analogy from the human body’s response to muscle damage and repair, where a cycle of damage, inflammation, repair, and adaptation leads to stronger muscles, this new insurance model seeks to shift from mere resilience to adaptation. By embedding insurance in the asset design process, akin to the body’s nervous system, connected product systems can be developed, facilitating ongoing adaptation and evolution of the assets.

The concept of connected and articulated systems plays a crucial role in this new insurance paradigm. These systems enable meaningful adaptation by allowing assets to communicate data to manufacturers and insurers, leading to a deeper understanding of the asset’s use and environment. This data sharing can inform improvements, making the assets more effective in their respective environments. Tesla’s ’over the air’ updates exemplify this approach, where continuous product evolution is facilitated through live updates or periodic releases.

In practical terms, vehicles co-designed by auto manufacturers and insurers could offer tailored insurance solutions, sharing data across a network of vehicles to inform design enhancements for future models. Similarly, smart hot water systems might include embedded insurance with ’over the air’ software adjustments, reducing risks like system bursts and allowing for proactive maintenance.

By aligning insurers closely with asset designers and manufacturers, Embedded Insurance at the Point of Design not only mitigates risks more effectively but also enables consumers to adapt and evolve in response to adverse events, marking a departure from traditional models that primarily aim to overcome nature.